Following October's flash Manufacturing PMI spike (to 12-month highs), today's Services PMI surged to 54.8 (its highest since Nov 2015) led by the highest level of new orders in 2016. It appears the extraordinary surge in government spending in the last quarter has rippled through and spiked these surveys, notably divergen from the declines in regional Fed surveys.

Service providers noted that supportive domestic economic conditions and an improvement in clients’ willingness to spend had underpinned the latest upturn in business activity. Reflecting this, new order growth also accelerated for the first time in three months and was the fastest since November 2015. Some survey respondents commented on greater business optimism and a corresponding rise in investment spending among clients.

Despite stronger business activity growth, service providers indicated that cautious staff hiring patterns persisted in October. Measured overall, job creation picked up only slightly from the three-and-a-half year low recorded in September. While some firms sought to boost their payroll numbers in response to rising workloads, there were also reports that efforts to reduce costs had led to the non-replacement of voluntary leavers.

“The latest survey data reveal a decisive shift in growth momentum across the U.S. service sector, which mirrors the more robust manufacturing performance seen during October. Taken together, the ‘flash’ PMIs suggest that the economy is growing at an annualized rate of around 2% at the start of the fourth quarter.

“Service providers experienced the fastest upturn in new business volumes since late-2015, which survey respondents linked to improving domestic economic conditions and signs of greater business investment in particular. That said, job creation remained relatively subdued in October, with firms reporting cautious hiring plans and efforts to alleviate pressures on margins.

“October’s survey findings contained positive signs for near-term growth prospects, with service sector companies the most upbeat about the business outlook since August 2015. Moreover, the month-to-month rise in this index was one of the largest seen over the past two years.”